Video: See how supermarkets get you to spend more

Transcript of: See how supermarkets get you to spend more

MATT LAUER, co-host:Back now at 7:48 with the secrets of supermarkets. How do
grocery stores
get you to spend more money? Well, tonight
CNBC
's
Tyler Mathisen
goes behind the

scenes in a special documentary called "Supermarkets Incorporated:Inside a $ Money Machine."
Tyler
, good morning.

TYLER MATHISEN reporting:And that is,
Matt
and
Meredith
, good morning to you. You know, most shoppers think they know their neighborhood supermarket. After all, you're in it two or three times a week. And while they might know where the milk is, what they don't know is how much supermarkets know about them. This is a half trillion
dollar
business, and
America
's 35,000 supermarkets are using every single high- and low-tech tool they have to get you to buy. When you enter a supermarket today, you're blasted with a barrage of sights, sounds and scents, all designed to get you to fill your cart. Staging begins even before I come into the store.

Mr. BRUCE DYBVAD:This is very theatrically presented. The illumination here is purposefully designed to just get the color to pop, to create that presentation and build a backdrop that pulls you into the environment.

MATHISEN:Bruce Dybvad
is CEO of
Interbrand Design Forum
, a company that designs stores and studies everything about them.

Mr. DYBVAD:The bakery is a critical part of the front end. You know, between coffee over here and bread, there's just a lot. The sights and sounds of this are almost overwhelming.

MATHISEN:And I
may have come only to get my staples -- my eggs, my cheese, my butter, my milk -- but when I come here and I see this, it plants a cue in my head.

Mr. DYBVAD:That is compelling. It's a stopping presentation. It makes you pay attention and take notice of some of the product that they have.

MATHISEN:Why in the world is the milk, the cheese and the butter usually at the farthest corner of the store?

Mr. DYBVAD:A lot of people that are coming to a
grocery store
are looking for milk, so that helps drive people to the far corner of the store. It's placed because it's last on the shopping trip, also.

MATHISEN:Instead of straight aisles, modern stores make you meander to try to bait you with more products. I suspect that most people -- women and men -- they think they're great shoppers. Are they?

MATHISEN:Martin Lindstrom
is one of the world's leading experts on why we buy what we buy. Have you noticed that
shopping carts
are bigger than they used to be?

Mr. LINDSTROM:We did an experiment with that. And we actually doubled the size of a
shopping cart
. And you buy 40 percent more.

MATHISEN:So why don't all the grocers then have huge
shopping carts
?

Mr. LINDSTROM:Because they're stupid.

MATHISEN:Fending off temptation isn't easy.
Lindstrom
has advice on how to keep your guard up and your shopping bill down.

Mr. LINDSTROM:Number one rule is to not bring the kids with you because you are buying more stuff. Number two, do not take a
shopping cart
at all. Carry things in your arms. You'd be surprised to realize, in fact, you don't need to buy more than you can carry.

Unidentified Woman:Total today comes to $1.71.

Unidentified Man:All right.

Mr. LINDSTROM:Part three, don't use your
credit card
. The
credit card
means you have unlimited numbers of money -- in your brain, at least, it says that. Use hundred
dollar
notes. If you break a
$100 note
, it will hurt like hell.

MATHISEN:You know, the rules may see simple -- seem simple.
It's hard
to leave the kids home every time, but with an average of 48,000 individual products per store to choose from, it is no wonder that
grocery stores
are a $500 Billion-plus business. Folks:

LAUER:And it's where those products are placed on the shelves that gets you to buy. So how does a little company compete with the giants for that
key space
?

MATHISEN:The sweet spot is -- think of a baseball strike zone -- between your knees and your shoulders, basically. And they all want that space. Some stores, some chains, some wholesalers charge what are known as slotting fees that will -- that're prices that go right from a few hundred to thousands of dollars to get placement on the shelves.

The competition for the $1.5 billion a day Americans spend on groceries is cutthroat, with the battle playing out on the shelves in front of you. The stakes are so high because the profit margins are so low — 1.5 to 2 percent is typical.

In a typical supermarket, nearly 50,000 products fight for your attention: all those bottles, cans and boxes raising the same battle cry — “take me” — without saying a single word.

Every day, at virtually every one of the nation’s more than 35,000 stores, merchants employ a dizzying array of high- and low-tech tools in their struggle to grab a bigger share of the $500 billion spent every year at U.S. supermarkets.

When you enter a store today, you're being watched, trailed and analyzed in ways you’d never imagine. From heat maps tracking which aisles you walk down, to video monitoring, to the loyalty card on your key chain, supermarkets use every method they can to learn as much as they can about you.

To wind up in your cart, every product has to communicate the right message.

“If Apple Computer was in the laundry detergent market, what would they do?” said Casper. "Of course, Apple has created some cool things. And we wanted to create a cool detergent. We think we did it."

Americans spend almost as much on laundry products as they do on iTunes — nearly $4 billion a year — more than $10 million every day for brands like Tide, Gain and Purex.

That’s why Henkel has teams of artists, engineers and technicians who focus every working day on the look of the bottle, the design of the packaging, the placement of every letter of every word on every label.

Brian Houck, a senior product designer at Henkel, explained how new products are scrutinized through the eyes of potential customers — and supermarket managers.

"For the consumer, is it easy to handle? Is it easy to put in your cart? Is it easy to store in your house? Is it easy to pour product from? For the retailer," Houck said, "it’s important that we take their factors into account, like how does it work on their shelf? Is it the right height? Is it efficient to pack out on their shelf? Does it warehouse easily?"

For Henkel, and every other established brand, it’s a never-ending struggle to protect precious shelf space.

Retailers, meanwhile are carefully scrutinizing how those products move off the shelves.

Bruce Dybvad, CEO of Interbrand Design Forum, is an expert on what motivates shoppers. His Dayton, Ohio, company designs stores and studies everything about shopping — down to the precise placement of products on the shelf and how to appeal to the shoppers' senses.

You may have come to the store just to pick up staples like eggs, cheese, butter or milk. But you'll be met with a series of what Dybvad calls "stopping presentations" of other products, staged as theatrically as a Broadway set.

“The bakery is a critical part of the front end," he said on a recent tour of the Dorothy Lane Market in Dayton. "Between coffee over here and bread, there's just a lot — the sights and sounds of this are almost overwhelming.”

That beautiful stack of produce you’re seeing isn’t always all produce. Some stores put a “dummy” at the bottom — a bunch of cartons artfully arrayed to make the real produce look more abundant.

"A lot of people that are coming to a grocery store are looking for milk, so that helps drive people to the far corner of the store," said Dybvad.

Some supermarket sales strategies haven't changed in decades. The most valuable real estate is still whatever’s directly at eye level.

But other trends are new — and none of them by accident.

Instead of row after row of straight aisles, newer stores make you meander. More twists and turns means more products to be tempted by. Many shoppers just work the perimeter. But the store wants to get you down every aisle. At the same time, store designers don’t want you to feel trapped or confused, like you’re in a maze.

But Dybvad says they’ve thought that out, too — by adding breaks in the middle of longer aisles.

"It encourages somebody to actually commit to the aisle, to see that they've got an escape route," he said.

Today’s best stores blast you with sounds and scents — the misting of water over vegetables, the aroma of fresh baked bread, the sight of rotisserie chicken spinning over the flame. It's all designed to entice you to buy.

And while most people may think they're good shoppers, experts like marketing consultant Martin Lindstrom, say we're getting worse and worse.

"We did an experiment with that, and we actually doubled the size of the shopping cart," he said. "And you buy 40 percent more. In Whole Foods, the shopping carts over the last two years have doubled in size almost."

Surprisingly, in this most price-conscious of businesses, price doesn’t always matter. Smart supermarkets can make you think you’re getting a good deal, even if you’re not.

"What matters is that certain points of price are exactly what they’re expected to be," said Lindstrom. "Because you can’t measure the price level in a whole supermarket at the same time. So, if the eggs are cheaper than what you normally see, the milk ... is cheaper, and the toilet paper is cheaper, then you will actually think the whole supermarket is cheaper. Then you can actually increase the price 10 percent on everything else, in principle. And that’s what’s happening right now."

Sales signs and loyalty cards may help you save. But they also help the store learn more about you. The 375-store Stop and Shop chain recently introduced Scan-it, a hand-held self checkout tool that links to your loyalty card. It keeps a file of every purchase you’ve made — for the last 60 weeks. It knows what you’re buying — right down to your brand of deodorant — and even where you are in the store at any moment.

"It knows generally that you're here in the cereal aisle," said Andrea Astachan, Stop and Shop's vice president of consumer affairs, on a recent demonstration of the device. "And it could be that a very relevant offer based on cereal comes up for you now."

As you walk through the store, the Scan-it system sends targeted messages — like sales coupons — directly to your hand-held device. When you walk past the cheese section, the device alerts you with a "cha-ching” and an offer targeted to cheese buyers.

That may be more information than some shoppers want the store to know.

"Increasingly, loyalty cards are being tied to databases and data mining," said Joseph Turow, University of Pennsylvania communications professor, who worries about our privacy in the aisles. "Right now, everything that's going on in the supermarket about us is like a black box. We really don't know what's happening. We know that we have loyalty card. In the back of my mind, I know that data about me are collected. But I just don't know how that's affecting what I see. I think we should know what are the privacy policies. "

Turow’s concern is that we’re being profiled, our particular buying habits tallied, parsed and provided to stores’ retailing partners. So just what do stores know about you?

"We don't know who you are," said Mike Grimes, CEO of Modiv Media, which developed the Scan It device. "But we know, based on the card you scanned, what is interesting to you based on what you've purchased in the past. There's a section based on what we know about you that you're not shopping. It could be that you're not buying any paper products. You may be buying them from someplace else but not here. So, we'll incent you to buy those by giving you an extra dollar off."

With an enticement to buy more at every turn, Martin Lindstrom has advice on how to outsmart the store.

"The No. 1 rule is do not bring the kids with you," he said. "Because you are buying more stuff. No. 2, do not take a shopping cart at all. Carry things in your arms. You’ll be surprised to realize in fact you don’t need to buy more than you can carry it."

Lastly, said Lindstrom, don’t use your credit card.

"The credit card means you have unlimited numbers of money, in your brain — at least, it says that," he said. "Use $100 notes. If you break a one hundred dollar note, it will hurt like hell."